Business law concept Indian Partnership act 1932 for MBA Study material

Definition:

partnership is the relation between persons who wants to carry on business and have agreed to share the profits and negative profits of the combined business.

               -Partnership

               -Two or more persons

               - For carry on business

               - For acquiring profits/Negative profits

Persons who have entering in to partnership with one another are called individually partners. They collectively knew as FIRM.

Essentials of partnership:

1.       Association of 2 or more persons

2.       Agreement

3.       Business

4.       Sharing of profit

5.       Mutual

Association of two or more persons:

               There shall be at least two competent persons to form a partnership firm. The maximum no. of partners should not exceed 20. A firm carrying on banking business, then the no. of partner should not exceed 10.

               If the no. of partners exceeds this limit. The partnership becomes an illegal association and also it ceases to be a partnership if the number gets reduced to one.

Agreement: (partnership deed)

               Partnership is also a contract it is an agreement between the partners which is the basis of contract. Partnership must have all the essential elements of a valid contract. It is in the interest of the partner the agreement must be in writing. The document which contains the agreement nature of business, principal place of business, name of the firm, profit sharing ratio valuation of good will on the death a retirement of a partner mgt of the firm accounts of the firm arbitration etc..

               The partnership deed must be duly stamped as require by the Indian stamp act 1889

Business:        

               A partnership can be formed only for the purpose of carrying on some business. Business includes trade, occupation and profession. Business involves numerous transactions. The business carried on by the firm must be legal.

Sharing of profits:

               A object of partnership firm must be to make the profit. The profit will be distributed among the partners in an agreed ratio of partnership deed. The sharing of profit also involves sharing of loss which in fact negative profit.

Mutual agency:

               The business of partnership firm may be carried on by all the partners. A partner is both an agent and a principal. He can bind the other partners by his act. In the same way he can be bound by the other partners also. This is known as mutual agency.

Registration of firms:

               The partnership act does not provide for the compulsory registration of firm. It has left it to the option of the firm to get themselves registered but indirectly an un registered firm suffers from certain disabilities so that every firm has to get itself registered registration is an evidence of the existence of the partners.

Procedure for registration:

               An application in the form of a statement giving the necessary information shall be submitted with the registration of firms. The application should contain the following details those are

1.       Name of the firm

2.       The principal place of business of the firm

3.       Names & of the other places where the firm wants to carry on its business

4.       The date of joining of each partners

5.       The full names and permanent address of the partners

6.       The duration of the firm

The above statement shall be signed by all the partners. When the registrar is satisfy that the above provision & true he shall record any entry in the register of firms then he shall issue “ A certificate of registration “. Registration is effective from the date when the register files the application and makes the entries in the registrar.

Effects of Non-registration:

1.       An un registered firm can not be the firm or any partners of the firm

2.       An un registered firm cannot be the third party

3.       The un registered firm cannot have any legal entity

Rights of a partner:

1.       Right to take part in business

2.       Right to be consulted (consequences)

3.       Right to access to accounts

4.       Right to make in profits

5.       Right to interest on capital

6.       Right to interest on advances 

7.       Right to be indemnified (compensation for damages)

8.       Right to of partner as agent of the firm (mutual agency)

9.       Right to use of partnership property

10.    No new partners to be introduced

11.    No liability before joining

12.    Right to retire

13.    Right of outgoing partner to share in the subsequent profit

Duties of partners:

               Partnership is a contract of  “ utmost good faith”

The very basis of partnership is mutual trust can combined the duties of partners are

1.       To carry on business to the greatest common advantage

2.       To observe faith : partnership is a ‘fiduciary relation ‘. This should observe utmost good faith towards the other partners of the firm every partner must be faithful among each other

3.       To identify for fraud

4.       To attend the duties diligently

5.       Not to claim extra remuneration

6.       To share losses

7.       To identify for willful neglect

8.       To hold and use property of the firm exclusively for the firm

9.       To account for personal profit

10.    To account for profit and in competing business

11.    To act with in authority

12.    To be liable jointly and severally

13.    Not to assign (delegate) his rights to others

Kinds of partners:

               The following are kinds of partners

1.       Actual/active partner

2.       Sleeping partner

3.       Nominal partner

4.       Sub-partner

5.       Partner in profit only

6.       Partner by estoppels

7.       Minor partner

Actual / active partner:

               A person who becomes a partner by an agreement is known as actual partner. This partner is activity engaged in the conduct of the business of the firm so is also known as active partner. Is the agent of the other partners. He binds himself he binds the other partners also for all the acts which he does in the ordinary course of the business of the firm.

Sleeping partner:

               A partner who does not take an active part in the conduct of the business is known as sleeping partners. He like other partners invests capital. He shares in the profits of the firm. He is equally liable for all the acts with other partners. This existence is kept secret from the out spiders dealing with the firm.

Nominal partner:

               A partner who lends his name to the firm with out having any real interest in it. He does not invest in the business of the firm. He does not take path in the mgt  of the firm. He doesn’t share in the profits.

Partner in profits only:

               Some times partners may agree that a partner shall get a share of the profits only. He shall not be liable to contribute towards the losses. Such a partner is known as a partner  in profits only.

Sub-partner:

               When a partner agrees to share his profits with a third person then the third person is known as sub-partner. A sub-partner is no way connected with the firm. He has no rights against the firm he is not liable for the acts of the firm.

Partner by estoppels (holding out):

               Under certain circumstances a person who not a partner in a firm may be liable for its debts as if he were a partner. Such partner is called a partner by estoppels

Ex: a retired IAS officer, took the honorary president of the business of certain persons who requested him for the same held he was liable for the debts of the firm.

Minor partner:

               According to sec(ii) of the Indian contract act an agreement with a minor is void. Is in capable of entering in to a contract. But in the contract of partnership, with the consent of all the partners, a minor may e admitted to the benefits of partnership for the time veing.but a minor cannot be a promise.

Dissolution of partnership:  

               Dissolution of a partnership means the relationship of the partner will be come to an end. For example if there is a partnership among A,B & C come to an end. But the partnership between A&B comes in to being. The new firm with A and B is called reconstituted firm.

               Thus retirement of a partner from a firm doesn’t dissolved the firm. The firm continues with the changed constitution. The partnership between continuing partner with be unaffected.

                              Dissolution of partnership is two types

Dissolution without the order                                    dissolution by court

Of the court

By agreement                                                                                        insanity

Compulsory dissolution                                                                       permanent        

                                                                                    in capacity

on the happening of certain                                                                  mis conduct

Contingencies              persistent

by notice at will                                                                                          birch

                                                                                                          business working

                                                                                                            Alone

By agreement:

          A firm may be dissolved with the an soul of the all the partners in accordance with the contract among them.

Capacity dissolution:

          If there are two partners one partner became insolvent, that firm can no longer exist since their must be at least two partners in a firm. By the happening of an unlawful event for the business of the firm for example A,, a resident of India and B is a resident of position . the partnership between A and B become unlawful and it is dissolved automatically.

Dissolution on the happening of certain contingencies:

          The partnership can be dissolved by the expiry of term, the death of partner the insolvency of the partner.

Dissolution by notice at will:

          The firm may be dissolved by any giving notice in writing to all the other partners of his intention to dissolved the firm at will. The firm dissolved from the date mentioned in the notice as the date of dissolution once notice given can not be withdraw unless all the other partners agree it.

Dissolution by the court:

           The court may dissolved the firm from grounds

●  Insanity (un sounded mind)

●  Permanent in capacity

●  Miss conduct

●  Continuous breach of agreement

●  Business working at a loss

Insanity:

          Where a partner has become of un sound mind. The court may dissolved the firm on the petition of any of the other partners.

Permanent incapacity: 

          Where a partner pertinently incapable of performing his duties as a partner the court may dissolve the firm.

Miss conduct:

          Where a partner is guilty of misconduct and it is likely to effect the rights to carry disturbed the court may dissolve the firm. Ex: adulterous relations, defraud, conviction by court of law, gambling, negligence to attend the business

Persistent breach of agreement:

          Where a partner willfully, persistently come its breach of the partnership, it is very difficult to carry on the firm’s business to other partners with him. If any of the partners kept erroneous. If there is continued quarrelling between the partners if there is state where all mutual confidence is destroyed the court may ordered for the dissolution of the firm.

Business working at a loss:

          A partnership is formed essentially to earn and share profits. If the business can be carried on only at a loss, the attainment of profit making becomes in perusable, such a case the court may dissolve the firm

S.N

1. partnership deed

2. partnership

3. Mutual agency